Is Chinese Superiority a Myth? |
Wednesday, 3 August 2022 — Albert Park | By Callum Newman | Editor, The Daily Reckoning Australia |
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[6 min read] The war for Taiwan? The myth of China’s superiority Dear Reader, In today’s edition of The Daily Reckoning Australia, Jim Rickards delves further into the China-Taiwan conflict. In order to understand the geoeconomic implications of this critical hotspot, it’s vital to consider China’s position in the global order. Jim thinks that Chinese superiority might be a bit exaggerated…but where does this leave the China-Taiwan conflict? Read on to find out… Regards, Callum Newman, Editor, The Daily Reckoning Australia
Capitalism with Jinping Characteristics |
| By Jim Rickards | Editor, The Daily Reckoning Australia |
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Dear Reader, The second major recent development is the rise of Xi Jinping. After the chaos of Mao Zedong and the rejection of Maoism by Deng Xiaoping, China settled into a low-key and orderly process of governance. The key was consensus. There would be a leader, but the leader would build consensus inside the Politburo, continue the economic growth started under Deng Xiaoping, and avoid high-profile blunders and confrontations. Each leader would serve two consecutive five-year terms, with the successor clearly identified during the second term so that there would be an uneventful transition. This pattern was followed by Jiang Zemin (1993–2003), Hu Jintao (2003–13), and initially, by Xi Jinping (2013–?). Now, Xi Jinping has broken the mould. Through a series of Party Congresses and other forums, he has elevated himself to a place comparable to Mao Zedong in the pantheon of the Communist Party, enshrined ‘Xi Jinping Thought on Socialism with Chinese Characteristics for a New Era’ (习近平新时代中国特色社会主义思想), and made it clear that he will remain in office beyond the customary expiration of his term in 2023. In effect, Xi is ‘president for life’ and the new Mao. This change in leadership and governance has resulted in profound changes in policy. Xi actively attacks big tech and media firms inside China. He has pushed to delist Chinese companies from Nasdaq and NYSE and move those listings to the Hong Kong Stock Exchange. He has crushed the last traces of democratic process and free speech in Hong Kong. Most dangerously, he has threatened to take Taiwan by force. The war for Taiwan? A Chinese invasion of Taiwan would be the most disruptive geoeconomic event possible, equivalent to an invasion of Japan or Western Europe, and just short of nuclear war. The outcome would be highly uncertain. The biggest variable would be whether the US would come to the military defence of Taiwan. The US Seventh Fleet could interdict Chinese amphibious forces in the Strait of Taiwan, suppress Chinese air power, and otherwise assist Taiwan in repelling an invasion with anti-missile defences, drones, electronic warfare, and intelligence. At the same time, China could attack US vessels with cruise missiles, launch its own electronic warfare — including attacks on critical infrastructure in the US, such as power grids and wireless communications networks — and push forward with its amphibious invasion. Escalation would involve financial warfare, an embargo on energy imports to China, and a shutdown of a large percentage of the world’s semiconductor industry. China no doubt covets control of Taiwan’s semiconductor capacity, including its high-end technology and five nanometre production facilities. This opens the possibility that Taiwan would destroy its own semiconductor fabs and labs before the Chinese could occupy them, in a 21st century version of a scorched-earth retreat. China might also deem it in its interests to invade Japan to consolidate its East Asian hegemony. Such an invasion would certainly involve the US — and likely Australia, the Philippines, and India. It could be tantamount to a Third World War. The outcome of such a war would be highly uncertain. The only certainty is that it would be a political and economic disaster for the world, especially for the belligerents. The myth of China’s superiority Will it happen? The case against such a war is basically in the scenarios described above. Events would likely escalate and spin out of control. Gains are possible for China, especially if the US doesn’t come to the aid of Taiwan. Still, the risks are too high, and the costs are too great. Instead of an invasion, China could continue its rhetoric and its military readiness but otherwise bide its time. The case for a war also comes down to time. Casual observers of China’s growth and technology are impressed with stories of how China will soon surpass the US in total GDP, how China will dominate the future of AI, nanotechnology, and quantum computing, and how China’s military strength will be able to defeat the antiquated US Navy assets in the Western Pacific. The reality is quite the opposite. China’s growth has been overstated for years and is slowing dramatically. Its technology edge is eroding now that the US and others have curtailed high-tech exports to China and strengthened intellectual property protections. China’s army has not fought a major war in almost a century; it’s completely untested in combat. China is also buried in unpayable debt, which is now defaulting in a cascade, starting with the real estate sector. There is also a demographic disaster unfolding that may cut the Chinese population in half in the next 50 years, at the same time as the remaining population is rapidly ageing. This age factor is highly correlated with dementia, Alzheimer’s disease, and Parkinson’s disease. Of course, Chinese industry and the civilian population are utterly dependent on imported coal, oil, and natural gas, which can all be interdicted. In my next edition, I’ll look more into the myth of Chinese superiority and what this means for your investments during these strange geoeconomic times. Regards, Jim Rickards, Strategist, The Daily Reckoning Australia This content was originally published by Jim Rickards’ Strategic Intelligence Australia, a financial advisory newsletter designed to help you protect your wealth and potentially profit from unseen world events. Learn more here. 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| By Bill Bonner | Editor, The Daily Reckoning Australia |
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Dear Reader, Last week, we heard from the US’s two most hoary financial authorities: ‘I do not think the U.S. is currently in a recession and the reason is there are too many areas of the economy that are performing too well’, said Jerome Powell, jefe of the Fed. ‘This is not an economy that’s in recession’, added Janet Yellen, former Fed chief and now US Treasury Secretary. The good news hung in the air like the perfume of a passing transvestite — fraudulent but not unpleasant. But scarcely 18 hours later, over the wires came word the US economy really is in recession. Last quarter showed negative growth of 0.9%. Combine that with the first quarter and you have annualised growth of about MINUS 1.25% so far this year. Those are the Feds’ own numbers. They show a recession underway. Curiously, the press was eager to reframe the ‘recession’ story in a way that made it less threatening to the Biden Administration. That is, reporters aimed to distract readers and help them to miss the point. Quack, quack, quack! This is a new form of journalism, better suited to the propaganda industry the US press has become. For example, we were told by both The New York Times and The Washington Post (they must have collaborated to get their story straight) that the latest figures risk ‘fuelling recession fears’. It’s like reporting that ‘the flames from the second storey windows caused firemen to worry that the building might be a fire hazard’. Fearing a recession is a psychological phenomenon. Experiencing one is a whole different thing. And if fear were the real risk, the recession itself must be of no importance. It also echoes FDR’s famous line, that ‘all we have to fear is fear itself’, leaving readers to believe that it must be a little unpatriotic even to imagine such a thing. You can see how easy and useful this new journalism can be. When the stock market is crashing, reporters could chortle: ‘Wall Street values greatly increased yesterday’. Likewise, the technique might be useful for Baltimore’s overworked crime reporters: ‘A mass shooting today on the corner of North and Charles has left citizens worrying about whether they have adequate life insurance’. But as they say in the legal trade, if it looks like a duck, waddles like a duck, and quacks like a duck…well, it’s a duck. And it looks like a recession to us. Stocks have fallen. Bonds have fallen. Real estate is beginning to fall. And now, the economy is actually shrinking. Quack, quack, quack… No more pussyfooting The message has gone out, despite the media’s attempt to kill the story. But it’s summer and a lot of people aren’t checking their email. So far, there are no shrieks of panic. Investors were buying stocks last week, betting that we’ve seen the worst of the stock market sell-off. The Fed is still lending far below the level of consumer price inflation. Congress is still spending money it doesn’t have on projects that make no sense. And the federal deficit is still more than US$1 trillion. But major turns take time. Sometimes years. In 1980, Paul Volcker made it very clear what he was going to do. And then he did it. No pussyfooting around; he raised the Fed Funds rate nearly 700 basis points (7%) above consumer price inflation. (For reference, that would be a Federal Funds rate of 12% today, rather than the 2.5% we have.) But investors didn’t know what to make of it…and frequently guessed wrong. The ‘primary trend’ was up for both stocks and bonds. But investors weren’t convinced. From May of ‘83 to July of ‘84, bond prices went down. It was four years after the primary trend had begun before it was clear. Then, it just kept on truckin’ (with periodic backing up) until July 2020 — 39 years after it began. The primary trend Likewise, in the summer of 1982, the Dow took off on what was to be its biggest joy ride ever. It should have been obvious, as early as January of 1980, that stocks were going up. If Volcker tamed inflation, as he promised, interest rates would come down. Stocks would be more valuable. But in January 1980 the Dow was only at 878. And instead of shooting up, the Dow wandered aimlessly. Two and a half years later, it had actually lost value, and was down to 808. And yet, there too…the cards had been dealt. And it was a winning hand for stock market investors. After 1982, stocks continued to go up, with occasional breaks, for the next 39 years. The Dow didn’t finally top out until December 2021. Then, it was more than 36,000, for a gain of 44-times investors’ money. That is the power of the ‘primary trend’. Alas, like a bad marriage, it’s only clearly visible in retrospect. At the time, it’s noisy, chaotic — full of passion and confusion. Which takes us back to our question…how can we be so categoric; how come it’s ‘inflate or die’? Why not something in between? Can’t you just have a little bit of inflation to help the medicine of a correction go down? Can’t the most egregious investments pass away, but otherwise leave the economy intact? Or to put it another way, are investors who ‘buy the dip’ necessarily making a mistake? More to come… Regards, Bill Bonner, For The Daily Reckoning Australia Advertisement: Three ‘Bear Market Survival’ Stocks to Own RIGHT NOW One is a major player in Australia’s coal industry. The other is a telecom giant that recently completed a key infrastructure project. And the last is one of the largest ETFs in Australia. All have one thing in common — they can provide a relatively secure income stream to help you avoid any further big losses in this bear market. Click here to learn more. |
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